LPL Financial’s board of directors terminated President and CEO Dan Arnold for cause this week, citing violations of respectful workplace policies. Some analysts covering the firm maintained their ratings on LPL, saying this will not materially impact the day-to-day operations of the firm.
LPL Financial, the independent broker/dealer with more than 23,000 advisors, said its board terminated Arnold for cause. He also resigned from the board and Rich Steinmeier, managing director and chief growth officer, was named interim CEO, effective immediately.
Steven Chubak with Wolfe Research said he expected no change in the firm’s strategy and a smooth CEO transition. He believes Steinmeier should get the permanent CEO role.
“Steinmeier has been the primary architect of LPLA's growth strategy in recent years, and the strong relationships he has fostered with LPLA's advisors/enterprise partners has been instrumental to the company's success, contributing to the organic growth acceleration since his appointment,” Chubak wrote in an analyst note. “Steinmeier has a wealth of experience having served in leadership roles at both UBS and Merrill, and is well suited to take the reins as CEO.”
The company’s organic growth rate is up 650 basis points since Steinmeier joined the firm in 2018. Wolfe maintained its “outperform” rating.
Chubak also doesn’t believe the firing is indicative of “pervasive cultural issues” at LPL, and that the misconduct “appears more idiosyncratic.”
According to LPL, Arnold “made statements to employees that violated LPL’s Code of Conduct.”
Devin Ryan with JMP Securities said he believed Arnold’s firing to be an “isolated incident” and maintained a “market outperform” rating and price target of $310. He also doesn’t expect this to disrupt the day-to-day operations of the company.
“Advisors primarily operate as independent entities, and they should not expect any change to their level of service, support with clients, technology or economics, factors that impact their everyday business prospects and customer relationships,” Ryan wrote in an analyst note.
“Furthermore, Mr. Steinmeier is well regarded, and we believe represents a comforting choice, as he has played a key role in recent strategy, and we would not anticipate any material strategic shift at the company, particularly given the current momentum it is experiencing today across channels,” Ryan wrote.
Michael Cho at J.P. Morgan said that while the change in leadership may impact near-term sentiment, he expects a smooth transition longer term.
“While we are surprised at the management change, our sense is that the board acted quickly to remedy the situation,” Cho said in an analyst note. “We think any investigation related to this event is fully complete and do not expect another shoe to drop.”
He added that Steinmeier and CFO Matt Audette had been driving the firm’s strategy for many years.
“Our view is that the current executive team (interim CEO and CFO) will remain in place and will continue to execute on LPL’s strategic initiatives,” he wrote.
Cho lowered his earnings estimates for the third quarter 2024, but that is due to lower expected cash sweep revenue. He reduced his price target for December 2025 to $264 a share. LPL is currently trading at $230.77, up 0.40% in trading on Wednesday, as of 3:56 p.m. Eastern time.
Morningstar analyst Michael Wong said he would maintain his recently increased fair value estimate of $314 a share, despite Arnold’s departure.
Under Arnold’s tenure, LPL's total return to shareholders was 537%.
